By Paul Fletcher, Partner – Griffins:  Is Fraud a victimless crime that we should ignore as nobody really gets hurt? 

Whilst the government has recently been pumping huge sums into the banks to avoid financial meltdown, organised criminal syndicates have been extracting billions of pounds from the government on a major scale for a number of years.

Consider the following, a company is trading as a men’s outfitter in two rented outlets in the north of England. Suddenly new directors arrive on the scene suggesting the company diversifies into new markets. The company starts buying and selling millions of pounds of mobile phones and computer chips, often to and from the same companies. Turnover jumps from £250,000 per annum to £250 million per annum. 

The phones are never seen by the directors but they are willing to transfer and receive millions of pounds to companies they have only recently been introduced to. No credit checks are done and “credit” is often extended for millions of pounds. The payments are all made via a bank in the Caribbean “recommended” to them by their contacts in this new exciting trade. 

Welcome to the world of “Carousel Fraud” also known as MTIC Fraud – Missing Trader In Community. 

Vast sums have been fraudulently obtained by companies and individuals in this type of scam. The fraud centres on the ability to charge and reclaim VAT on high value, small volume items using a vast web of companies both in the UK and the EU. 

The UK company buys the goods from another member state net of VAT. The company, described as a defaulter/misser, then sells to a purchaser charging VAT for which they do not account, and the purchaser then reclaims the VAT from HMRC. The “sale” is then repeated a number of times, to companies referred to as buffers until the goods are exported and this seller, known as the broker, then reclaims the VAT back from HMRC – this is the big money end of the fraud. 

The same process happens within the EU and “goods” flow in and out of the country – hence the term Carousel Fraud. This is illustrated as follows. 

Company E in this example is the broker and on each set of transactions hundreds of thousands of pounds can be extracted from HMRC. 

With “trades” often in excess of £1m at a time vast sums of money can be illegally claimed over a relatively short space of time. 

The monies made often disappear into further offshore accounts or are laundered via foreign exchange companies. Where do they go then? 

Whilst it is believed that large sums are used to finance terrorism, others are used to fund the lifestyles of the perpetrators of the crime both in consumer goods, such as sports cars, jewellery and property – often the second property is situated in an emerging property market. 

The Dutch intervention on the MTIC fraudster’s bank of choice in 2006 resulted in many millions of pounds being frozen.  The government are now seeking ways to repatriate some of the money. 

HMRC are also active in trying to convict and recover monies from individuals following these frauds and it was reported in September 2008 that as a result of recent trials, twenty one people had been convicted and given sentences totalling 202 years following a £138m fraud. 

The other downside for the participants in Carousel Fraud? Having to find hundreds of thousands of pounds to settle with the Liquidator! 

Are there victims in this fraud? Yes, in this case, all of us…

Contributed by – Paul Fletcher, Partner at Griffins Licensed Insolvency Practitioners. Paul specialises in international fraud and investigation. Griffins Licensed Insolvency Practitioners – based in London, a boutique firm offering bespoke insolvency solutions to debtors and creditors alike. 

Website: www.griffins.net